- Supervalu reported a 35% increase in net sales for the second quarter to $3.8 billion compared to $2.8 billion for the same period last year, the company said in a statement. Its wholesale segment led with a 58% net sales jump to $2.74 billion, due in large part to a bump from its purchase of United Grocers. Net sales in its retail operations were $1.02 billion, compared to $1.03 billion in the second quarter of last year, a decrease of 1.1%. It beat analyst estimates by earning 46 cents per adjusted share compared to the 36 cents that was expected, according to MarketWatch.
- The Minneapolis-based company also announced Wednesday it will acquire retailer-owned cooperative Associated Grocers of Florida for $180-million in a deal expected to close at the end of the year. The purchase will expand its reach into South Florida, the Caribbean and other international markets.
“We continue to make tremendous strides in driving our strategy, evidenced by another quarter of strong growth from our core Wholesale business which now represents over seventy percent of net sales,” Supervalu President and CEO Mark Gross said in a press release. “Additionally, our results now include the benefit of Unified Grocers, where I'm pleased that the transition is going well. We have a lot to be excited about as we turn our focus toward the back half of our fiscal year.”
Supervalu's latest earnings report shows its recent strategy of focusing more on the wholesale side is paying off. CEO Mark Gross signaled after the company's first-quarter earnings report — and following its acquisition of United Grocers earlier this year — that about $11 billion in annual sales were expected through wholesaling compared to $5 billion in grocery sales. He called wholesale "the core strength of our business."
This was evident during the most recent period as its wholesale business posted operating earnings of $61 million, while its retail unit — which includes Shoppers, Cub Foods and Hornbacher's banners — had an operating loss in the second quarter of $58 million, which included a $42 million asset impairment charge.
Since 2012, Supervalu has reduced its retail store count from 1,500 to 220, mostly through the sale of its Save-A-Lot discount chain to private equity firm Onex Corp last year.
The question now for Supervalu is what to do with its underperforming retail stores. Margins have shrunk as locations have battled deflation and tough competitors in key markets. Hy-Vee has moved in on the company’s Cub Foods in Supervalu's Minneapolis headquarters with several high-performing locations, cutting into the chain’s leading market share. Cub has fought back with store remodels, but with several more Hy-Vee stores on the horizon, the company will need to continue to fight to hold on to its customers.
The stronger wholesale business, coupled with a low stock price, could make Supervalu a more attractive acquisition target for SpartanNash Co. and United Natural Foods. C&S Wholesale Grocers, the largest wholesaler in the U.S., has been mentioned as a possible suitor.
One downside to a Supervalu acquisition is the company’s debt at around $2.5 billion. To reduce it, Supervalu could consider divesting the rest of its retail operations, which have struggled in recent years. Hiving off its grocery store brands could make Supervalu even more attractive as an acquisition target for a buyer not interested in running a supermarket business or dealing with the hassle of selling it later on.
Supervalu is already reducing its dependence on retail by boosting its wholesale business through the United Grocers and Associated Grocers of Florida acquisitions. The deals significantly expand their distribution operations and position the company for wider growth. Supervalu is largely expected to continue to solidify its wholesale segment through additional deals, something its CEO has mentioned in the past.